Mumbai: Business leaders are not very different from the lay person because they too desire social approval, and their decisions are often shaped by social opinion.
Pino Audia, a professor of management and organizations at Tuck School of Business at Dartmouth College in the US, shows that all business decisions are not necessarily driven by market forces, but rather by subtle pressures that stem from public opinion.
Take for instance the federal minimum wage in the US, which has remained at $7.25 per hour for the past six years. Still, big corporations like Wal-Mart, McDonald’s, Starbucks, Ikea, Aetna and Gap in the past year increased the wages of their entry-level workers to $9, $10, or even $16 per hour.
While these companies said it was for higher employee retention and better customer service, Audia asks why this cascade of raises is happening now.
The reason for this sudden move is more likely because of a 2014 Pew Research Center poll than business reasons, he maintains. The poll showed 73% of those surveyed supported increasing the federal minimum wage to $10.10 per hour.
Even when organizations inform their stakeholders about how well they are meeting targets, it is also to build accountability. Audia says this comes from a natural desire to justify your conduct to those whose support you seek.
In a working paper, titled The symbolic management of performance: Public opinion and attention to performance in a public arena during the Iraq War, Audia looks at the Pentagon press briefings from 2003 to 2006 to see how their content changed when public support of the war shifted.
The nature of accountability also changes based on when an organization makes a decision. Audia says organizations tend to be more open to public opinion before a decision is made.
By analysing various press clippings during the war, he found that when public support of the war was high, the press briefings gave more attention to combat performance, even if it was nothing to boast about. But when public opinion about the war went south, the press briefings were silent about performance.
He says here openness makes way to being defensive when individuals have committed themselves to a course of action. In those cases, leaders engage in “defensive bolstering", where instead of “acknowledging mistakes they may have made, they form more rigidly defensive views and have a hard time writing off sunk costs".
For Audia, this research on public opinion and public assessment of performance is applicable to leaders in the business world as well, since leaders of large organizations, whether in government or the private sector, face similar levels of accountability pressures.